THE ROLE OF FORENSIC ACCOUNTING IN FRAUD CHECKMATE: A STUDY OF OYIGBO LOCAL GOVERNMENT

THE ROLE OF FORENSIC ACCOUNTING IN FRAUD CHECKMATE: A STUDY OF OYIGBO LOCAL GOVERNMENT

This study examines the role of forensic accounting in checkmating fraud. A case study of Oyigbo local government in Rivers State.

CHAPTER ONE

INTRODUCTION

• • BACKGROUND TO THE STUDY

The incidence and volume of fraud are on an increase on a daily basis and all level of the society is very involved. The rich and the poor, both young and elderly, irrespective of gender and ethnicity are neck-deep in fraud and fraud-related activities, which says a whole lot about our moral and family situations. From the much-adored politicians to the noble bank directors/ executives, from the revered legal officers to the law enforcement personnel, from the ordinary civil servants to the amiable school teacher, from the diligent trader in the market to the less significant hawkers on the street, the propensities for fraud and fraud-related crimes are endless. For instance, if one may ask, what will compel a top executive, a lowly ranked employee, or a long time middle manager to ultimately risk everything- job, integrity, career, and freedom, convinced that their crimes will go undetected?

Our everyday fictional characters on frauds and financial crimes, just like in the real world, are frequently motivated by financial needs caused by avarice, poor investments, greed, gambling, debts, or ostentatious lifestyles.

Fraud is simply a universal problem, as no nation or organization is immune to it, although developing nation and their organizations suffer the most pain. It then begs the question, what is Fraud? Fraud includes all the multifarious means human ingenuity can devise that are resorted to by an individual or a group, to get an advantage over another by false suggestions or suppression of the truth. It includes surprises, tricks, cunning or dissembling, and any unfair way by which another is cheated (Black’s Law Dictionary, 1 979)

Fraud is a legal term that refers to the intentional misrepresentation of the truth in order to manipulate or deceive a company or individual. It involves creating a misjudgment or maintaining an existing misjudgment to induce somebody to make a contract. David (2005), states that fraud is not a possibility but a probability. He also explains that fraud can be better prevented if decisions are made by a group and not an individual. However, this is not the case if the group has the same interest in mind. Then fraud may not be prevented.

Conversely, the group is influenced by the dominant decision-maker who ends up deciding everything. Russel (1 978 cited in Bello,2001 ) remarks that the term, fraud is generic and is used in various ways.
Fraud assumes so many different degrees and forms that courts are compelled to context themselves with only a few general rules for its discovery and defeat. The first and most sophisticated way of carrying out fraudulent activities in many organizations is through the accounting and financial records.
Forensic accounting is a rapidly growing field of accounting that describes the engagement that results from actual or anticipated disputes or litigations.

“Forensic” means ‘suitable for use in a court of law’ and it is to that standard that forensic accountants generally work. Forensic accounting is an investigative style of accounting that is used to determine whether an individual or an organization has engaged in any illegal financial activities. Although forensic accounting has been in existence for several decades, it has evolved over time to include several types of financial information scrutiny. In many quarters, forensic accounting is equated to financial audits, but they are miles apart. Forensic accounting is usually described as the integration of accounting and auditing skills with investigative techniques and professional skepticism. A notable forensic accountant since 1 987, Alan Zysman, states, “Forensic accounting provides an accounting analysis that is suitable to the court which will form the basis for discussion, debate and ultimately dispute resolution” (Hecht and Redmond, 2012). One area of similarity is the provision in the statement of Auditing standard (SAS 1 ) that requires an auditor to approach his assignment with ‘professional skepticism’ which requires auditors to adopt a questioning mind and a critical assessment of audit evidence in assessing audit risk of fraud.

Employee and management fraud, theft, embezzlement, and other financial crimes are increasing, therefore accounting and auditing personnel must have training and skills to recognize those crimes in organizations both private and public, at the federal level and the grass root to better ensure these companies and corporations prospects, in the area of fraud prevention, deterrence, detection, investigation, and remediation.

Forensic accounting includes the use of accounting, auditing, and investigative skills to assist in legal matters. It consists of two major components; litigation services that recognize the role of an accountant as an expert consultant, and investigative that uses a forensic accountant’s skills and may require possible courtroom testimony. According to the definition developed by the Association of Institute of Certified Public Accountants (AICPA’s), forensic and litigation services committee, Forensic Accounting may involve the application of special skills in accounting, auditing, finance, quantitative methods, the law, and research. It also involves the quantitative skills to collect, analyze, and evaluate financial evidence, as well as the ability to interpret and communicate findings. Forensic accounting utilizes accounting, auditing, and investigative skills to conduct an examination into a company’s financial statements. Thus it provides an accounting analysis that is suitable for the court (Investopedia, 2003). Objective verification is the primary goal of forensic accounting. For this reason, many forensic accountants are asked to testify in court cases as expert witnesses for either the prosecution or the defense. It can be said therefore that forensic accounting is not limited to fraud detection but also assisting in litigation with the hope of recovering any losses, hence a forensic accountant’s assignment must be of such quality that it can withstand scrutiny by attorneys, judges, and juries.

On the other hand, a forensic accountant may be asked to calculate economic damages that occurred as a result of a breach of contract or provide insight into a case based on a claim of professional negligence. In Nigeria, for instance, businesses are faced with a breach of contracts which may be reasons for abandoned projects mainly the government-sponsored, by contractors who might have collected more than fifty percent of the contract sum. The application of forensic accounting can bring such fake contracts to book by providing appropriate financial evidence that can aid legal actions against them. Also, forensic accounting is considered to be a mechanism for a global war against money laundering, terrorism financing, as well as other fraudulent and social vices that have impeded the nation’s march to development (Oguma, 2011).

Forensic accounting is hence, said to bring significant improvement in the quality of fraud detection and prevention.

STATEMENT OF THE PROBLEM

Increasing instances of misappropriation of corporate funds and the failure of the statutory audit to prevent them, along with an increase in corporate crimes and frauds have put pressure to find a better way of exposing fraud in the business world. Again, a series of frauds have been committed both in the public and private sectors of the economy, in recent times. These in no doubt are perpetrated under the supervision of the internal auditors of the organization. It suffices to say that the independence of the internal auditor is not guaranteed because he works as an employee of the government or organization. Then comes the idea of external auditors, yet fraud is still being committed on a daily basis. Since there is no alternative mechanism to review the auditor’s reports to ensure full authenticity and fairness, the external auditor cannot be questioned, as his report, more often than not is taken hook-line-sinker. He is more liable to engage in fraudulent activities, as a result of his unquestionable autonomy.

Another problem could be attributed to the fact that the existing conventional accounting or auditing practices are incapable of going beyond numbers and analyzing other hidden aspects of corporate fraud. These aforementioned scenarios indicate that as more and more development in Information Communication Technology (ICT) world and other fields, so fraudsters continue to groom their own tactics toward fraudulent practices.

It now becomes pertinent that forensic accounting is introduced and practices since the external auditors do not or may not have the required training to be able to tackle modern frauds like white-collar crimes such as security fraud, embezzlement, bankruptcies, contract disputes, and possibly criminal financial transactions; including money laundering by organized criminals, also is the ability of the forensic accountant to provide litigation support services and investigative accounting.

Thus, this study would fathom how the work of the forensic accountant can curb the faceless phenomena of fraud.

OBJECTIVE OF THE STUDY

The general objective of this study is to examine the effect of forensic accounting in curbing fraud in Oyigbo local government, The specific objectives of the study include:

1. To ascertain the impact of investigative accounting on fraud
2. To find out the effect of litigation support services on fraud
3. To examine the relationship between investigative accounting and fraud prevention
4. To examine the relationship between litigation support services and fraud detection

RESEARCH QUESTION

The following research questions are drawn to address the objectives of this study.

1. To what extent does investigative accounting impact on fraud detection?
2. What is the effect of litigation support service on fraud prevention?
3. To what extent does investigate accounting relates to fraud prevention?
4. What is the extent of the relationship between litigation support services and fraud detection?

HYPOTHESIS

Prior to the specific objectives and research questions, the following null hypothesis is formulated.

Ho1: Investigative accounting has no impact on fraud detection.

Ho2: Litigation support services has no effect on fraud prevention.

Ho3: There is no significant relationship between investigative accounting and fraud prevention.

Ho4: There is no significant relationship between litigation support services and fraud detection.

SCOPE OF THE STUDY

In the light of broad coverage, conceptually the researcher focuses on the effect of forensic accounting on fraud checkmate in an organization. The geographical scope of coverage is Oyigbo’s local government in Rivers State.

LIMITATION OF THE STUDY

In the course of this research work, the researcher encountered some limitations. Some limitations envisaged in this research work were:

• The uncooperative attitude of the staff in the organization: This is a major limitation that increases the time spent in completing the research work.
• Monetary constraints: These factors serve as a deficiency for the research work and the result of low financial capability, it was not enough to give the desired results. Since no man can claim a monopoly of knowledge, this study is no exception, and we acknowledge that this study is limited by a myriad of.

SIGNIFICANCE OF THE STUDY

The essence of this study is to provide a clear picture of the role forensic accounting plays in curbing fraud in organizations. The research work when completed will be very useful to the following:

• Businesses and companies: the study will create awareness among managers on the important roles forensic accounting plays in checkmating financial crimes.
• Government and its corporations: The study will empower the government with the knowledge and means to reduce fraud through the tool of forensic accounting.

Generally, through documentation, the study will prove to be of importance to most sectors of the economy, small-scale businesses, religious leaders, scholars of every discipline, and the general public. The research work would also contribute to the existing literature on this topic, and will serve as a guide to other researchers, that want to carry out similar research on it.

DEFINITION OF TERMS

INVESTIGATIVE ACCOUNTING: An examination of forensic audit evidence regarding an assertion to determine its correspondence to established criteria carried out in a manner suitable to the court.

FORENSIC ACCOUNTING: This is an investigative style of accounting that is used to determine whether an individual or an organization has engaged in any illegal financial activities.

LITIGATION SERVICES: This entails the legal lawsuit process to give client support from the forensic accountant.

FRAUD: It is the intentional misrepresentation of the truth in order to manipulate or deceive a company or individual

INTERNAL CONTROL: These are measures put in place, acting as a managerial guide so as to prevent fraudulent acts.

FRAUD CHECKMATE: This involves the means undertaken to thwart or curb illegal financial activities.

OTHER RELATED MATERIAL